<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
Commission File Number: 0-21313
PONTOTOC PRODUCTION,INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 84-1349552
- ---------------------------- -------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
808 East Main, Ada, Oklahoma 74820
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(Address of principal executive offices including zip code)
(580) 436-6100
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No___
As of December 31, 1997, 3,750,000 shares of common stock, $.0001 par value
per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
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INDEX
Page
Number
Part I. Financial Information
Item I. Financial Statements
Balance Sheets as of December 31, 1997
and March 31, 1997 . . . . . . . . . . . . . . . . . . 3
Statements of Earnings, Nine Months
ended December 31, 1997 and 1996 . . . . . . . . . . . 4
Statements of Earnings, Three Months
ended December 31, 1997 and 1996 . . . . . . . . . . . 5
Statements of Cash Flows, Nine Months
ended December 31, 1997 and 1996 . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . 8
Part II. Other Information. . . . . . . . . . . . . . . . . . . . . 10
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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PONTOTOC PRODUCTION, INC.
BALANCE SHEETS
ASSETS December 31, March 31,
1997 1997
(Unaudited) (Audited)
----------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 122,045 $ 87,499
Trading securities 4,339 4,500
Accounts receivable, net 394,325 312,963
Other 37,770 6,306
---------- ----------
Total current assets 558,479 411,268
PROPERTY AND EQUIPMENT-AT COST, net 132,974 163,091
OIL AND GAS PROPERTIES-AT COST, net,
using the full cost method 1,769,201 1,181,414
OTHER 4,900 3,250
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$2,465,554 $1,759,023
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 100,384 $ 107,981
Accrued and other current liabilities 28,115 24,000
Income taxes payable 20,462 17,688
Deferred income payable 91,614 57,685
Current portion of long-term debt 45,791 107,809
---------- ----------
Total current liabilities 286,366 315,163
LONG-TERM DEBT, less current maturities 528,175 314,994
DEFERRED INCOME TAXES 390,566 252,551
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value;
authorized 100,000,000 shares;
issued and outstanding, 3,750,000
shares 375 375
Additional paid-in capital 108,924 108,924
Retained earnings 1,151,148 767,016
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1,260,447 876,315
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$2,465,554 $1,759,023
========== ==========
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<PAGE>
PONTOTOC PRODUCTION, INC.
STATEMENT OF EARNINGS - UNAUDITED
For the nine months ended
December 31,
1997 1996
Operating revenues ----------- ---------
Oil and gas sales $ 1,223,607 $ 605,826
Well supervision fees and
overhead reimbursements 85,022 101,297
Other 13,433 14,427
----------- ---------
1,322,062 721,550
Operating costs and expenses
Production 456,333 135,780
Depreciation, depletion, and amortization 82,137 40,955
General, administration, and other 194,611 91,089
----------- ---------
733,081 267,824
----------- ---------
Earnings from operations 588,981 453,726
Other income (loss) 28,597 15,832
Interest expense (35,559) (14,923)
----------- ---------
Earnings before income taxes 582,019 454,635
Provision for income taxes 197,886 144,144
----------- ---------
$ 384,133 $ 310,491
=========== =========
Net Income Per Share $ .10 $ .08
=========== =========
Weighted average common shares outstanding 3,750,000 3,750,000
=========== =========
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PONTOTOC PRODUCTION, INC.
STATEMENT OF EARNINGS - UNAUDITED
For the three months ended
December 31,
1997 1996
--------- ---------
Operating revenues
Oil and gas sales $ 363,133 $ 257,233
Well supervision fees and
overhead reimbursements 45,742 35,816
Other 4,041 6,093
--------- ---------
412,916 299,142
Operating costs and expenses
Production 52,259 8,427
Depreciation, depletion, and amortization 31,078 19,102
General, administration, and other 68,277 14,429
--------- ---------
151,614 41,958
--------- ---------
Earnings from operations 261,302 257,184
Other income (loss) 22,808 (2,950)
Interest expense (13,763) (10,441)
--------- ---------
Earnings before income taxes 270,347 243,793
Provision for income taxes 80,997 76,005
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$ 189,350 $ 167,788
========= =========
Net Income Per Share $ .05 $ .04
========= =========
Weighted average common shares outstanding 3,750,000 3,750,000
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<PAGE>
PONTOTOC PRODUCTION, INC.
STATEMENTS OF CASH FLOWS-UNAUDITED
Nine months ended December 31,
1997 1996
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $ 384,133 $ 310,491
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion, and amortization 82,137 40,955
Deferred income taxes 80,330 122,721
Gain on sale of property and equipment 28,597 16,232
Change in assets and liabilities
(Increase) decrease in
Trading securities 161 (4,500)
Accounts receivable, net (81,362) (196,429)
Other current assets (31,464) 12,883
Other assets (1,650) -
Increase (decrease) in
Accounts payable (7,597) 34,478
Accrued and other
current liabilities 38,044 1,862
Income taxes payable 2,774 (32,680)
--------- ---------
Net cash provided by operating activities 494,103 306,013
Cash flows from investing activities
Purchase of property and equipment (43,135) (159,063)
Proceeds on sales of property and equipment 58,285 58,510
Oil and gas property dispositions 10,000 3,962
Oil and gas property addition (635,870) (533,868)
--------- ---------
Net cash provided by (used in)
investing activities (610,720) (630,459)
Cash flows from financing activities
Long-term borrowings 440,100 570,226
Repayment of borrowings (288,937) (200,708)
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Net cash provided by (used in)
financing activities 151,163 369,518
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NET INCREASE IN CASH AND CASH EQUIVALENTS 34,546 45,072
Cash and cash equivalents at beginning of period 87,499 23,055
--------- ---------
Cash and cash equivalents at end of period $ 122,045 $ 68,127
========= =========
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $ 35,559 $ 14,923
========= =========
Income taxes 5,480 4,702
========= =========
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<PAGE>
PONTOTOC PRODUCTION, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 1997 AND 1996
NOTE A - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The major operations of Pontotoc Production, Inc. (the "Company") consist of
exploration, production, and sale of crude oil and natural gas in the United
States with an area of concentration in shallow reserves in the vicinity of
Pontotoc County, Oklahoma. Other business segments are not a significant
factor in the Company's operation.
The interim financial statements included herein have been prepared by the
Company without audit. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted; however, the
Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of the Company, all adjustments
necessary to present fairly the financial position of Pontotoc Production,
Inc. as of December 31, 1997 and 1996, and the results of operations and cash
flows for the nine month periods ended December 31, 1997 and 1996 have been
included and are of a normal, recurring nature. The results of operations for
such interim periods are not necessarily indicative of the results for the
full year. It is suggested that these interim financial statements be read in
conjunction with the Company's March 31, 1997 and 1996 audited financial
statements.
NOTE B - ACQUISITION OF OIL AND GAS PROPERTY
During the quarter ended December 31, 1997, the Company purchased 100% working
interest in a producing oil and gas lease located in Okmulgee, Oklahoma,
consisting of 600 acres. This lease is currently producing 12 barrels of oil
a day and 90 mcf of gas per day, workover is scheduled for early 1998.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE CONSOLIDATED STATEMENTS OF OPERATIONS
RESULTS OF OPERATIONS - 3 MONTHS ENDED DECEMBER 31, 1997
Operating revenues increased $105,900 (41%) from the third quarter of fiscal
year 1996 due to increased oil production from acquisitions and development of
oil properties. Oil prices were lower for the quarter ending December 31,
1997 as compared to the quarter ending December 31, 1996 with average oil
prices of $19.61 per barrel and $24.28 per barrel respectively.
Production costs increased $43,832 (520%) due to increased workover and
recompletion expenses.
Depreciation, depletion and amortization increased $11,976 (63%) as compared
to the same quarter during the prior year due to the addition of oil and gas
properties.
General and administrative costs increased $53,848 (373%) due primarily to
increased accounting, engineering and legal costs associated with
acquisitions.
RESULTS OF OPERATIONS - 9 MONTHS ENDED DECEMBER 31, 1997
Operating revenues increased $617,781 (101%) from the same period in the prior
year due primarily to acquisitions and recompletions.
Production costs increased $320,553 (236%) due to development of oil and gas
properties.
Depreciation, depletion and amortization costs rose $41,182 (101%) as compared
to the same period during the prior year due to addition of oil and gas
properties.
General and administrative costs increased $103,522 (114%) due to increased
accounting, engineering and legal costs associated with property acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $272,113 at December 31, 1997, as compared
to $96,105 at March 31, 1997. The increase in working capital is primarily
due to the net earnings during the period.
During the nine months ended December 31, 1997, cash generated by operating
activities was $494,103 compared to cash generated of $306,013 for the nine
months ended December 31, 1996. The increase in the amount of cash generated
was primarily due to the $73,642 increase in net earnings, an increase in
depreciation, depletion and amortization of $41,182, and a $115,067 reduction
in accounts receivable. These increases were partially offset by an increase
in other current assets and a decrease in accounts payable.
Cash flows from investing activities during the nine months ended December 31,
1997, were $(610,720) compared to $(630,000) for the comparable period of
1996. The Company paid $635,870 toward the purchase of oil and gas properties
during the nine months ended December 31, 1997, compared to $533,868 during
the comparable period of 1996.
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<PAGE>
Cash flows from financing activities during the nine months ended December 31,
1997, were $151,163 compared to $369,518 during the comparable period of 1996.
The Company borrowed a total of $440,100 during the nine months ended December
31, 1997, and repaid $288,937 toward its loans.
The Company does not have any material commitments for capital expenditures as
of the filing of this Report.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities.
On December 10, 1997, the Company issued 3,165,000 shares of its common
stock to the shareholders of Pontotoc Production Company, Inc. ("PPCI") in
connection with the acquisition of 100% of the outstanding shares of PPCI.
With respect to this transaction, the Company relied on Section 4(2) of the
Act. Each PPCI shareholder was provided with information on the Company and
each PPCI shareholder signed a Letter of Acceptance in which he represented
that he was purchasing the shares for investment only and not for the purpose
of resale or distribution. The appropriate restrictive legend was placed on
the certificates and stop transfer orders were issued to the transfer agent.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders
All of the Company's shareholders executed consent minutes dated
November 12, 1997, approving a change in the Company's name to Pontotoc
Production, Inc., and approving the 1997 Stock Option Plan.
Item 5. Other Information
The Agreement to Purchase oil and gas properties from Bill Cantrell
which was disclosed in the Company's Form 8-K dated December 10, 1997, was
terminated.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated December 10, 1997,
which reported on Items 1, 2,7 and 8.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PONTOTOC PRODUCTION, INC.
Date: February 23, 1998 By:/s/ James Robby Robson, Jr.
James Robby Robson, Jr.
President
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<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed consolidated balance sheets and unaudited condensed
consolidated statements of income found on pages 3, 4 and 5 of the Company's
Form 10-QSB for the year to date, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 122,045
<SECURITIES> 4,339
<RECEIVABLES> 394,325
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 558,479
<PP&E> 132,974
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,465,554
<CURRENT-LIABILITIES> 286,366
<BONDS> 0
<COMMON> 375
0
0
<OTHER-SE> 1,260,072
<TOTAL-LIABILITY-AND-EQUITY> 2,465,554
<SALES> 1,223,607
<TOTAL-REVENUES> 1,322,062
<CGS> 456,333
<TOTAL-COSTS> 456,333
<OTHER-EXPENSES> 276,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 582,019
<INCOME-TAX> 197,886
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384,133
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
